Being a restaurateur getting a restaurant concept off the ground is the most challenging project but the most rewarding one also. Many restaurants begin with a dream of crafting a fabulous ambiance with the best menu served inside a restaurant. Yet, many startups spend a huge amount from the outset. In this article, we’re going to answer the two most difficult questions “how to compute the startup cost of a restaurant?” and how to avoid overspending?
First, the basics…
To compute the startup cost, a business owner will need to set key goals of the business (for the next 3 to 5 years), marketing strategies, and other things.
According to a survey by RestautantOwner.com, the average cost of opening a restaurant varies according to the following setup:
- Low restaurant startup costs $175,500
- Median restaurant startup costs $375,000
- High restaurant startup costs $750,500
Keep in mind that the above figures are just anticipated ones and the cost will depend on the restaurant owner’s specific scenarios and concept.
*On average, the restaurant opening costs $100 and $800 per square foot. However, the cost depends on the location (new or existing location), concept, size, materials, and equipment.
How to avoid overspending on a new startup restaurant?
We all know that overspending is a very common and wide-reaching problem. Before a restaurateur assumes that he might need to spend millions on a new set up, let’s talk about a few things startup restaurants typically overspend on. Moreover, we have also discussed some best ways to keep control of one’s budget.
#1: New Equipment Costs
Price Range: $20,000-$400,000
A restaurant needs a good variety of kitchen equipment in addition to large appliances. Startups should be careful when purchasing kitchen equipment. It is better to look at second-hand options and buy only what is necessary.
Buying the kitchen equipment may one of the biggest expenses startups typically overspend on. It would be a wise decision if one chooses to hire an experienced financing company that works with restaurant owners to make a detailed financial plan. The bonus for working with them is a person knows about monthly costs that won’t break the budget.
*It’s easy to compute equipment and appliances costs but a little research is necessary to get the best rates and quality.
#2: Technology
We can’t live without Technology as it is everywhere. But, does a small restaurant really need it all? Yes, it does require to some extent but spending too much on high-tech can be bad for financial health. Therefore, one must prioritize the essential items on his wish list.
Furthermore, it is vital to install a bookkeeping system to keep track of the monthly budget, along with the POS system––both are essential technology items. While technology is on the rise, a restaurant owner must decide how much he needs to spend, and overspend, on it.
#3: Sales and Marketing
No doubt, it is one of the most overspending areas of startups, especially if advertising is something a restaurant owner doesn’t know about.
Yes, instead of using the low-cost advertising methods the restaurant owner gets talked into with an expensive marketing agency. They expect these sales teams to launch big ad campaigns, often before the required market research is done. Also they believe that overspending on S&M seems a viable strategy to boost sales.
This is how a startup owner should handle marketing without overspending.
- Sign up for Facebook and other social media sites– Leverage the Internet.
- Invest in low-cost Facebook ads.
- Interact with the customers via chat or using a website’s blog or both.
- Network and network to encourage referrals– Hand out flyers at local shops or nearby businesses.
#4: Decorating /Remodeling
Decorating the dining room is not so cheap but considered a costly expense whether a person is just remodeling or decorating an area. Therefore, one must make a decision wisely.
Think what’s most important; the art deco paintings or $2,000 chandelier? Startup restaurants can create a welcoming ambiance with some inexpensive landscaping options, nice lighting, paint colors, and finishes without overspending. Likewise, startups need to stay away from major expenses such as moving walls or getting high-impact technological elements. In short, the trick is to make appealing statements.
*Search online for inexpensive decorating ideas–– sites like Pinterest.
#5: Food Expenses
Do not overspend on poor menu choices. To begin, reach out to local farmers to establish relationships with them and contact several suppliers simultaneously. Evaluate menu to identify areas of waste. Moreover, it is vital to compute how much food (on average) comes back to the kitchen.
*Lastly, weigh everything. That fresh lettuce won’t last all week so stock up wisely.
How to avoid undercapitalization?
Restaurants tend to fail if there is a lack of enough funding. Undercapitalization makes startups more difficult to keep afloat. And to avoid the pratfalls, the business owner must work with professionals for better guidelines.
Here is a list of professionals that a restaurant owner should consult before computing the startup costs of a restaurant.
- Attorneys
- Real estate agents
- Accountants
- Marketing firms
- Architects
- General construction contractors
Final thoughts
We understand that the startup cost of a restaurant is high and so owners have a huge list of expenses to fulfill. In this article, we try to keep some capital in reserve by putting aside a few unnecessary expenses.
Remember, a lack of planning and poor budgeting has resulted in the failure of many startup restaurants. Therefore, you must create a budget-friendly wish list and stick to it, and also keep some money in reserve for future contingencies.
“Make a contingency plan for unexpected expenses.”
Thank you for reading!
Tell us in the comments section how you handled your restaurant’s startup plan? Was that successful or you had faced troubles with overspending? If yes, how was it managed? Post below some useful tips for future restaurant owners. We’d love to hear about your experience.
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